Potentially another CUT in May 2020. Happy? (COVID-19 is one reason)

Let’s just say that I am not always a happy man every time the Overnight Policy Rate (OPR) is cut. I know, the monthly mortgage gets lowered but lowering of rates also meant that the economy is not at where it should be. Thus, monetary policy tweaking is needed to sustain the growth or to support the weakness in growth so that we do not fall into any potential minus GDP potential.

Briefly, when the economy is booming with very strong positive sentiment, it may start to attract speculative buying and that’s when the interest rate may be increased in order to induce more people to save their money and thus reduce the pressure on prices to keep moving up; inflation. So, when the economy is not attracting a lot of people willing to invest in its growth, the rates are lowered so that people will prefer to take out their savings and invest into potential growth instead. This is what is happening today.

Article in themalaysianreserve.com The US Federal Reserve (Fed) has cut their rates to ZERO. Within hours of decision by Fed, the Hong Kong Monetary Authority also lowered its base rate by 65 basis points to 0.86% and this is the second reduction in March by both authorities. (Our BNM also cut the rates twice this year already. Read the latest cut here)

MIDF Amanah Investment Bank Bhd senior analyst Imran Yassin Mohd Yusof said, “BNM would not follow the US and announce an emergency OPR cut as it will likely do so during an MPC meeting. We also have to bear in mind that they have cut the rate twice this year and our government was also quick to introduce a stimulus package. However, we do believe the central bank may take another easing stance during its May meeting.”

Imran Yassin expects BNM to slash another 25bps, bringing the OPR to 2.25% at the next MPC’s meeting. In a report, Hong Leong Investment Bank said BNM will likely reduce the policy rate by a total of 50bps this year to bring the rate down to 2% in 2020. Please read the full article here: Article in themalaysianreserve.com

With the implementation of the Movement Restriction from 18th – 31st March 2020, the economic growth is likely to be somewhat impacted (even if the panic buying before may pushed up the numbers a bit). With the COVID-19 continuing to wreck havoc all over the world, many central banks will have to do more in order to contain the economic fallout and monetary policies will come to the fore. Please stay home, everyone. Hopefully all these negatives will slowly disappear within the next 2 weeks or so.

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